- 15 Marks
AT – Nov 2023 – L3 – SC – Q5 – Tax Administration and Dispute Resolution
Steps and objectives in handling a tax audit with FIRS and the required documentation.
Question
Zola Nigeria Limited has been in business for several years, preparing its accounts to December 31 of every year. Prior to the last two years, the company had a very good relationship with the Federal Inland Revenue Service (FIRS) as far as prompt filing of annual tax returns and payment of tax liabilities are concerned. The company was, however, fined for late filing of returns in the last financial year ended December 31, 2020.
In compliance with the provisions of the Companies Income Tax Act Cap C21 LFN 2004 (as amended), the company filed its annual returns for the 2022 assessment year (year ended December 31, 2021) within the statutory period. Payment of tax due was also made.
The review done by the tax officials at the FIRS on the tax returns filed by the company necessitated the request for additional relevant documents to authenticate some items of expenditure and capital allowances claimed. The FIRS subsequently wrote a letter to the company for the submission of the documents within two weeks of the receipt of the letter. The receipt of the letter was acknowledged by the company, but it, however, failed to forward the required documents to the tax authorities. A reminder was sent to the company four weeks after the first letter was written, yet it failed to respond to the request made.
The Managing Director of the company has just received a letter from the tax office that a team of tax inspectors will be visiting the company in a fortnight to conduct a tax audit.
The company has approached your firm of chartered accountants to assist with advice on how the company should handle the forthcoming tax audit.
Required:
Your Principal Partner has directed you, as a newly employed Audit Senior, to handle the engagement and expects you to prepare a report for his review before sending the same to the client. The report should address the following:
a. Objectives of tax audits (5 Marks)
b. Stages in a typical tax audit process (4 Marks)
c. Schedule of requirements for FIRS tax audit (6 Marks)
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